The State Bank of Pakistan (SBP) has acquired $5.5 billion from the banking market during the June-December period of fiscal year 2024-25, with expectations that the total dollar purchase for the year will surpass the country’s IMF borrowing over the next three years.
The SBP’s dollar purchases for the June-December period were part of its regular interventions in the currency market, but the amount purchased continues to grow each month.
In contrast, the central bank bought just $536 million in December, significantly lower than the $1.151 billion purchased in November. Over the rest of the year, purchases included $573 million in June, $722 million in July, $569 million in August, $946 million in September, and $1.026 billion in October.
This pattern suggests the central bank is stabilizing the exchange rate and prompting exporters to release their proceeds.
Despite these purchases, the SBP’s foreign exchange reserves decreased by over $500 million last week, signaling persistent vulnerabilities in the country’s foreign exchange reserves and a lack of effective policy management.
In addition to these purchases, Pakistan is set to receive more than $35 billion in remittances this year, along with inflows from the International Monetary Fund (IMF), World Bank, and a rollover of over $14 billion in external loans.
Notably, the remittances received in the first eight months of the current fiscal year have already exceeded by $6 billion the total remittances from the entire previous fiscal year (July 2023 to June 2024).
Despite these large inflows, the country’s economic managers continue to struggle with effectively managing these funds, and the current account remains in surplus for the first eight months of FY25.
However, the challenges persist, as evidenced by the sharp drop in foreign exchange reserves. As of last week, the reserves stood at a six-month low of $10.6 billion, following a $540 million drop.
Financial experts have highlighted the need for the government to devise a strategy for managing the massive inflow of remittances, which will primarily be absorbed by Pakistan’s substantial debt servicing requirements, estimated at no less than $25 billion annually. The high inflows, while positive, are not enough to balance the growing external liabilities.
